Covid-19 and the Commercial Tenant

As the Covid-19 emergency intensified the Irish Government introduced measures to protect tenants. The Emergency Measures in the Public Interest (Covid-19) Act 2020 (the Act) amended the Residential Tenancies Act to give statutory protection to renters from 2 March 2020 for an initial period of three months (the Emergency Period). The Act introduced measures including the prohibition against landlords terminating tenancies during the Emergency Period.  The provision states that “all proposed evictions in all tenancies in the State” are prohibited for the duration of the Emergency Period. This wording is very broad and commercial tenants have trying to argue this provision extends to commercial leases.

This uncertainty was clarified recently. A furniture business named Design Features Ltd (the Plaintiff) secured an interim injunction against its landlord in the High Court prohibiting its eviction from a warehouse in Dublin (the Property) after being unable to pay April ’s rent as a result of the huge business interruption due to Covid-19.

The Plaintiff’s solicitor argued that the alleged eviction was impermissible. The Plaintiff had traded from the Property for 22 years.  It had complied with all its obligations under its lease including having paid its rent up to the end of March.  Due to the Covid-19 pandemic and the lock-down restrictions imposed by the Government, the Plaintiff was forced to cease trading.  It had advised its landlord, the defendant, that it would be unable to pay April’s rent. The landlord refused the Plaintiff access to the Property warehouse from 9 April.

The Plaintiff’s solicitor argued that the prevention of access amounted to unlawful eviction in breach of the Plaintiff’s tenancy and the Act.  Justice Humphreys of the High Court granted the Plaintiff the interim order which were made ex parte.  He directed the landlord to immediately provide the Plaintiff with access to the Property. The Plaintiff’s solicitor commented that this outcome is “positive news for commercial tenants all over the country”. This decision demonstrates that commercial tenants are being given some measure of protection during these unprecedented times.  This should give some welcome relief to businesses across Ireland.

Regardless of this decision, we advise commercial landlords and tenants to consider taking reasonable steps to mitigate losses arising the business fallout from Covid-19.  Communication between landlord and tenant is key. Both sides must work together symbiotically to protect their investments and businesses.   It is in everyone’s interest to ensure businesses can resume trading once this crisis has passed.  Early communication and collaboration are crucial.  Any agreement as regards concessions for rental payments due under a commercial lease should be clearly documented.

Commercial landlords and tenants should be advised that forfeiture is an equitable remedy. A judge would be more sympathetic to a landlord seeking to forfeit a commercial lease during the Emergency Period due to missed rent if the parties had first endeavoured to reach a concessional arrangement. If an agreement were reached and subsequently breached, the landlord’s claim to forfeit the lease would be more likely to be successful.

A claim for forfeiture is unlikely to be successful if based on a breach of the following terms of a lease during the Emergency Period:

  1. keep open obligations;
  2. minimum trading hours;
  3. any obligation requiring on-site security presence; or
  4. any obligation not to board up / close up windows for example of retail premises.

To conclude, whilst the grant of the Plaintiff’s injunction provides some hope for the commercial tenant during the Emergency Period, the lack of direct government guidance for commercial tenants means that Irish businesses should err on the side of caution.  Tenants should engage with their landlords during this Emergency Period about their current business difficulties and endeavour to negotiate a settlement for example a rent free / reduced rent payment during this crisis period in return to an extension of the term or a waiver of upcoming break clause.